Online payment fraud: EU discusses stricter regulations

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Several EU member states are putting pressure on the European Commission to make social media platforms more accountable in the fight against online payment fraud. This was reported on Thursday by the British daily newspaper Financial Times. The initiative is being led by Ireland. Numerous US tech companies such as Google have their European headquarters in the country.

At issue is a Commission proposal for the regulation of payment services currently being negotiated between EU member states in Brussels, which provides for the introduction of a right to automatic reimbursement from PayPal, Visa, Mastercard and banks for customers who have fallen victim to fraudsters. According to the Financial Times, the Irish Department of Finance has proposed an amendment that would oblige social media companies to check the legitimacy of advertisers before publishing their ads. In this context, the newspaper refers to recent EU figures according to which online fraudsters defrauded EU citizens of €4.3 billion in 2022 by using sophisticated ads to trick users into entering their personal data.

Mandatory registration for financial service providers

According to the Irish proposal, which the Financial Times was able to view, only registered financial service providers would be allowed to place advertisements in the EU in future. To this end, the regulations currently being negotiated would have to be amended. The measures proposed by the government in Dublin "focus on the actor placing the content, not the content itself", according to a note submitted by the Irish Department of Finance in February. "It simply requires the platform to verify that it is an authorized financial services provider before a company becomes an advertiser."

According to the Financial Times, the Irish initiative has been received with interest by other EU countries. According to people close to the proposal, around half of the EU countries have spoken out in favor of it. However, the Irish plan has hit an obstacle.

Hurdles for the Irish proposal

The EU Commission argues that an obligation for tech companies to check online advertising customers for possible fraudulent intentions would violate a provision of the Digital Services Act (DSA). With the Digital Services Act, which was passed three years ago, the EU set a new standard for the responsibility of online platforms for illegal and harmful content. However, tech companies are not obliged to monitor content on a broad basis, several EU officials told the Financial Times.

According to supporters of the Irish initiative, however, an obligation to monitor advertisers could be designed in such a way that it is compatible with current law. The EU Commission did not wish to comment on this when asked by the Financial Times, citing the ongoing proceedings.

Poland, which currently holds the EU Council Presidency and is therefore responsible for reaching a consensus on legislation, is not convinced by the proposal, the newspaper continues. Warsaw has instead proposed simplifying communication between payment providers and tech companies, "who would then have to remove or block access to content relevant to the cause of the reported fraud", according to a draft.

Lack of understanding of fraud schemes

The Financial Times also quotes voices from the financial industry saying that legislators do not fully understand the nature of investment fraud and the gap in the legislation. For example, advertisements promoting online payment fraud could be placed on a large scale and removed at any time.

This usually happens after the damage has already been done, but before the authorities find out about it. In many cases, while victims try in vain to get their money back, advertisers simply repost similar ads in a different format.

(akn)